Question

Hoosier Corporation declared a 2-for-1 stock split to all shareholders of record on March 25 of this year. Hoosier reported current E&P of $600,000 and accumulated E&P of $3,000,000. The total fair market value of the stock distributed was $1,500,000. Barbara Bloomington owned 1,000 shares of Hoosier stock with a tax basis of $100 per share. How does stock devidend effect Hoosier's accumulated E&P at the beginning of 2010?

Answer 1

Hoosier does not adjust its E&P for the stock dividend because it is not taxable to the shareholders.

Step-by-step explanation:

Hoosier does not adjust its E&P for the stock dividend because it is not taxable to the shareholders. This conclusion is based on the definition of taxable dividends.